Lessons From Disaster

While accidents like the airplane crash involving Commerce Secretary Ron Brown and several American executives on Wednesday are impossible to prevent, experts say companies can take several steps to protect themselves in the event of the sudden death of a top executive:

1. Make sure the line of succession is clear

After the loss of a key leader, the remaining executives in a company may spend more time battling over turf than running the business. To be sure that operations continue as smoothly as possible, the company should establish a clear line of succession among executives.

* Example: When Richard A. Snyder, president of In-N-Out Burgers Inc., perished in a December 1993 plane crash, the fast-food chain was able to complete a transfer of corporate headquarters from Baldwin Park to Irvine because a succession plan was in place. On the other hand, after Walt Disney Co. President Frank G. Wells died in a helicopter crash in April 1994, Chief Executive Michael D. Eisner assumed his responsibilities by default, which observers believe may have contributed to his need for emergency heart surgery a few months later.

2. Develop a crisis management plan

To restore confidence quickly, it is crucial for a company to brief employees, customers, investors and the media so they will be assured that there is a firm hand on the corporate tiller. Plans should be in place to notify the families of employees who fall victim to tragedy so that they don’t hear the news first from the media.

3. Don’t concentrate too much power and information in just one person

If the only person who knows important details about a company--such as a computer password or bank account number--suddenly dies, the information will be difficult, if not impossible, to recover. Experts suggest that such information be shared among at least a few top people.

* Example: After Live Entertainment Chairman Jose Menendez was slain in 1989, stock in the entertainment company lost nearly half its value and didn’t recover for many months because he was so critical to the company’s success. On the other hand, Eagle Computer Inc. of Los Gatos, Calif., in 1983 recovered smoothly from the car-accident death of President Ronald Mickwee because the company had a strong bench of talented vice presidents.

4. Consider a “key person” insurance policy

This form of life insurance is purchased by a company to protect against the sudden loss of an extremely valuable executive. Benefits from the policy compensate a company for the cost of finding and training a replacement, as well as against any loss in market value that a company might incur as a result of the key person’s death.

* Example: When Perry Ellis died in 1986, his fashion empire collected $5 million from a “key man” policy his company had purchased.

5. Coordinate travel plans carefully

Just as the U.S. president and vice president always travel separately, so too should top executives from the same company. In the event of a disaster, at least some key employees will survive.

* Example: Chevron USA rules dictate that only a certain number of executives at each level can fly together so that an entire chain of command could not be felled as the result of a single accident. That kept the death toll in a 1987 crash to four Chevron employees, including only one senior executive--President James Sylla. In contrast, a 1991 plane crash in Malaysia killed four senior executives of Conoco Inc., an oil subsidiary of Du Pont Co.